Contract For Difference (Cfd)
| A contract for difference (CFD) is an agreement between two parties to exchange the difference in the value of an asset from the time the contract is entered into until the time it expires. The asset can be anything from a stock or commodity to a currency or index. CFDs are traded on margin, which means that you only have to put down a small deposit, known as a margin, to open a position. This allows you to take a much larger position than you would if you were buying the asset outright. The main benefit of trading CFDs is that you can take advantage of both rising and falling markets. If you think the price of an asset is going to go up, you can buy a CFD, and if it does, you will make a profit. If you think the price is going to fall, you can sell a CFD, and if it does, you will also make a profit. Another benefit is that you can trade CFDs on a wide range of assets, including shares, indices, commodities, currencies, and treasuries. This gives you a lot of flexibility when it comes to choosing what to trade. CFDs also have a number of other advantages, including: - Leverage: You can trade with leverage, which means you only have to put down a small deposit to open a larger position. This can magnify your profits if the market moves in your favor, but it can also magnify your losses if the market moves against you. - No stamp duty: In the UK, you don't have to pay stamp duty on shares when you buy them outright. However, you do have to pay stamp duty on CFDs. - Shorting: You can short sell with CFDs, which means you can profit from falling prices. - Tax: CFDs are treated as derivatives for tax purposes, which means you may be able to offset any losses against profits for tax purposes. CFDs are a popular way to trade the financial markets, but they are not suitable for everyone. You should make sure you understand the risks involved before you start trading. |
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